'That is why we will consult to make it compulsory for all listed companies to introduce clawback clauses into board contracts.

'This will mean that execs might have to pay back bonuses they have already received or not get their bonuses in the first place.'

Welcomed: Chuka Umunna said he was happy with Mr Cable's proposals but said he felt they did not go far enough

He admitted it was not government's
role to micromanage company pay but insisted ministers had to address a
'clear market failure'.

His proposals angered Tory right-wingers, who said he risked harming the country's growth prospects.

Labour said the plans did not go far enough because workers should be installed in boardrooms.

But David Cameron said putting workers on pay committees was wrong.

'The answer is to empower the
shareholders, to have much more transparency, to have clear votes on pay
packages and, particularly, to make sure people can't get these rewards
for failure, where some executives who do not perform well get massive
payoffs,' said the Prime Minister.

Government sources said UK quoted
companies would need to have 'clawback mechanisms' on all future
employment contracts.

They are already being introduced in the financial sector.

In the Commons, some backbench Tories heckled the Business Secretary and said his plans were 'drivel'.

'Can I suggest that you get off their backs and let them create
some wealth and you spend your time in your department trying to sort
out some of the massive problems that we face without interfering in
every business in the country?'

John Cridland, of the CBI, said the proposals were practical and would help take the heat out of the issue.

'We have been clear that executive pay
must always be fair and transparent, and that high pay must be for
outstanding, not mediocre, performance. Millions for mediocrity does a
disservice to the reputations of hard-working businesses,' he added.

The Government, meanwhile, is not planning to stop a bonus being paid to the Royal Bank of Scotland's chief executive.

Stephen Hester, 51, is entitled to a maximum payout of up to £1.5million – on top of a base salary of £1.2million.

A No 10 source said: 'The bottom line
is we do have to pay people to do what is a difficult and unpopular
job.' But ministers will try to deny Mr Hester his maximum entitlement.